The Morning Ledger: A Leaner, Stronger Corporate America

By

David Hall

Apr 9, 2012 6:38 am ET

No pain, no gain. Cost cuts during the downturn and caution during the recovery have made big U.S. companies more efficient and more profitable. The Journal’s Scott Thurm dug through S&P 500 financial reports for this A1 splash and found that “cumulative sales, profits and employment last year” bested 2007 levels. Thurm’s research backs up what we noted recently — capital spending is beginning to rebound. Capex rose 19% last year at S&P companies, more than double the 9% increase in 2010. “The sharper increase brought capital spending back to 5.8% of total revenue for the companies in the Journal’s analysis, equal to its level in 2007.”

The question of course is how much longer this will continue. And as we note below, there are already signs that we’re hitting the limits — several bellwethers may show weaker profits in coming days.

And as Friday’s dismal jobs report shows, there’s still plenty of caution when it comes to hiring. Agilent CEO Bill Sullivan says he’s still “very, very cautious” about hiring. “That’s a lesson current leaders of industry will not forget.”

QUESTION FOR LEDGER READERS: How surprising was the March jobs report and does it make you more cautious on hiring? Email us your thoughts.

THE WEEK AHEAD:

Welcome to earnings season. Alcoa kicks things off on Tuesday and could demonstrate how we’re hitting the limits of cost cutting amid tepid growth. It’s expected to swing to a loss, setting the stage for what could be a gloomier crop of corporate results. Analysts are expecting the lowest rate of year-to-year growth since the end of the financial crisis. And companies have been issuing a lot more negative earnings guidance than positive forecasts.

But “comments from corporate chieftains, and their outlooks for the year, may be more important than the numbers the companies produce,” says the Journal’s Jonathan Cheng. There could even be an upside to all the pessimism. One analyst tells the FT that Q1 estimates have been ratcheted down so much that “that many companies should beat expectations.”

Earnings highlights:Alcoa, Google, J.P. Morgan, Wells Fargo

ECONOMIC AGENDA:

The March nonfarm payrolls report has reignited QE3 hopes, so three March inflation readings out this week take on added importance. Import prices – out Wednesday – are expected to rise 0.8%, sharply higher than February’s increase, thanks to higher imported petroleum costs. The other two reports are likely to be more subdued. PPI – out Thursday — is expected to climb 0.3%, and on Friday we’re likely to see CPI inch up 0.2%. Thursday’s weekly jobless claims are also expected to rise slightly to 359,000.

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